The Impact of Wind Power Generation on the Electricity Price in Germany

This paper provides insight into the relationship between intermittent wind powergeneration and electricity price behaviour in Germany. Using a GARCH model, theeffect of wind electricity in-feed on level and volatility of the electricity price can beevaluated in an integrated approach. The results show that variable wind power reducesthe price level but increases its volatility. With a low and volatile wholesale price, theprofitability of electricity plants, conventional or renewable, is more uncertain.Consequently, the construction of new plants is at risk, which has major implicationsfor the energy market and the security of supply. These challenges, related to theintegration of renewables, require adjustments to the regulatory and the policyframework of the electricity market. This paper’s results suggest that regulatory changeis able to stabilise the wholesale price. It is found that the electricity price volatility hasdecreased in Germany after the marketing mechanism of renewable electricity wasmodified. This gives confidence that further adjustments to regulation and policy mayfoster a better integration of renewables into the power system.